CARNS v MCNALLY

Summarized by Alexandra Schnapp , U.S. Bankruptcy Court, Northern District of Georgia
8 years 5 months ago

Case Type:

Consumer

Case Status:

Affirmed

Citation:

CO-17-001 (10th Circuit, Sep 15,2017) Not Published

Tag(s):

Ruling:

The Bankruptcy Appellate Panel of the Tenth Circuit affirmed the bankruptcy court's determination that a creditor failed to meet his burden of proof under sections 727(d)(1) and 523(a)(3) where the debtor's failure to disclose assets was not done with fraudulent intent and the investor received actual notice of the bankruptcy case through his attorney.

Procedural context:

An investor filed an adversary proceeding against the debtor seeking a determination that his debt was non dischargeable and to revoke the debtor's discharge. The bankruptcy court (D. Colo.) held a trial and ruled for the debtor. The investor appealed to the Bankruptcy Appellate Panel of the Tenth Circuit.

Facts:

The debtor operated numerous ventures and companies. An investor lost his entire investment to one of the debtor’s creditors, and he sued the debtor for fraud in state court. The investor obtained a default judgment. When the debtor filed chapter 7 bankruptcy, he listed the investor as an unsecured creditor, but he failed to include an address. Twelve days later, he amended his schedules to include the investor care of the attorney who had represented him in the state court matters. No objections to discharge and dischargeability were timely filed, and the bankruptcy court granted the debtor a discharge and closed the case. The investor sought to collect the state court default judgment, and the collection agency told the investor that the debtor had filed bankruptcy. The investor moved to reopen the debtor’s bankruptcy case, the court granted the motion, and the investor filed an adversary proceeding seeking to revoke the debtor’s discharge pursuant to section 727(d)(1) and to deem a debt owed to him nondischargeable pursuant to section 523(a)(2)(A). The bankruptcy court held a trial after which it found that: 1) there was no basis to revoke the debtor’s discharge because the debtor did not fraudulently intend to omit assets in his bankruptcy schedules, and the alleged omissions were not material; and 2) the relevant nondischargeability section was 523(a)(3) (excepting debts of the kind listed in sections 523(a)(2), (a)(4), and (a)(6) that are neither listed nor scheduled in time to permit a creditor to file a proof of claim and nondischargeability complaint, unless the creditor had actual notice of the case in time to do so), and that the investor was given timely notice of the bankruptcy case when notice was served on his attorney. The investor appealed.

Judge(s):

Michael, Hall, Thuma

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